Market Update January 2020

Australian equity markets posted impressive returns in January 2020.

Australian equity markets posted impressive returns in January 2020, rising strongly in the first half of the month before giving back some gains in the second half, on the back of concern arising from political uncertainty and the outbreak of a new strain of coronavirus in China. By contrast, all major foreign stock exchanges declined over the month in local currency terms with the United States’ S&P 500 performing the best by remaining flat, making Australia a real stand-out performer in January. The value of the Australian Dollar decreased against all major currencies, which meant that global returns were generally positive when measured in Australian dollar terms. Global investment grade credit spreads broadly widened over the month (i.e. the market’s perceived riskiness of lending to high quality companies increased).

Australia was ravaged by bushfires over January. Fires are still burning and have spanned roughly 13 million hectares, approximately the size of England. Whilst the casualty count has remained relatively low, currently 25, compared with other bushfires in Australia’s past, the damage to many regional communities is more extreme and will take considerable time to recover. The effect of the bushfires on animals and the productivity of fertile land is significant. It’s estimated that the bushfires will reduce annual GDP by approximately 0.2%-0.5%. The government has pledged $2bn (which is approximately double the insurance claims to date) over 3 years in aid. This will partly offset the loss in this year’s GDP growth rate, caused directly by the bushfires.

The United Kingdom left the European Union (EU) officially on the 31st of January at 11pm London time. The Union Jack was promptly removed from the EU parliament building and placed in the EU museum. There is negligible effect on the United Kingdom and citizens of member countries of the EU at this stage, as Brexit has entered the “transition period” in which current laws and trading practices remain intact. The transition period is currently scheduled to end on 31 December 2020. This leaves 11 months for Boris Johnson, the Prime Minister of the United Kingdom, and his government to negotiate a comprehensive trading agreement with the EU. A point of note is that the current withdrawal agreement allows for an extension of the transition period for 1 or 2 years, providing the UK and EU agree.

Donald Trump, President of the United States, was impeached on two counts by the House of Representatives on the 18th of December with the vote following largely along party lines (with Democrats having control of the house). In January these articles of impeachment were sent to the Senate. Senate deliberations were short with no witnesses being allowed to testify. The Senate acquitted President Trump of both articles of impeachment on the 6th of February.

Democratic primary elections and caucus campaigns are well underway with voting beginning early February in Iowa. There are still 12 democratic nominees in the race, however, as voting evolves in the early states the field should start to whittle down as the various states vote between now and June 2020. There are currently two clear favourites for the Democratic nomination among the latest polls, former Vice President Joe Biden and the senator from Vermont, Bernie Sanders.

Tensions between the U.S. and Iran following the assassination of General Soleimani on 3 January 2020 showed few signs of easing in early January. Both sides announced they had selected targets to pursue using their respective military forces. The United States pulled out of the Iran nuclear agreement in mid-2018, and with the subsequent escalations, Iran has announced they are no longer sticking to the agreement that limits uranium enrichment and other developmental research. In response to this, France, Germany and Britain stated they are not following the United States approach of “maximum pressure” on Iran. However, on the 14th of January they triggered a dispute resolution mechanism for breaches of the Iran nuclear deal by Iran. A Joint Commission has now been formed, and the process could take up to 65 days to complete. There are a number of possible outcomes, including sanctions being imposed on Iran or the deal being scrapped completely.


An emergent disease from China, 2019n-CoV, which appears to have originated in a wet market in Wuhan, has spread materially in January 2020. Current reported infected cases are in excess of 40,000 people, with cases outside China totalling less than 400. The current number of confirmed fatalities is just over 900 people (more than SARS), with the current fatality rate estimated at 2% (as of 10 February 2020).

The virus outbreak is most likened to the SARS epidemic of 2003, although there appear to be some notable differences. Researchers believe that SARS had a relatively short incubation period (2-7 days) and was most contagious during the second week of infection. Whilst not much is known about this coronavirus, it appears to have a longer incubation period and may be transmissible before serious symptoms arise, making it more difficult to quarantine suspected cases. In addition, the outbreak coincided with the Chinese lunar new-year celebrations starting on the 25th of January, which involves the biggest annual migration of people in the world.

In response, the Chinese government has quarantined the entire province of Hubei, effectively locking down approximately 60 million people to contain the virus. The director-general of the World Health Organisation (WHO), Tedros Adhanom Ghebreyesus, praised China for its response, stating “I have never seen for myself this kind of mobilisation”. Officials have also mobilised army resources, constructed field hospitals and enacted travel restrictions across the country and internationally.

The Australian government has placed a travel restriction for foreign nationals entering Australia, barring entry for anyone who has been in mainland China within the last 14 days. Australian citizens, permanent residents and their immediate family will be allowed to enter, subject to a 14-day self-isolation period. Other countries, including the United States, have put in place similar measures to help stop the spread of the disease.

Whilst much remains unknown about how far this strain of coronavirus will spread and how severe its impact will be, there are clear economic implications of the measures implemented so far in an attempt to stem its spread. Travel restrictions and the quarantine of millions of people have hurt the fortunes of tourist operators, airlines and firms that depend on consumer spending, and these companies have seen their share prices fall amid a broad sell-off in regional equity markets. The Australian Dollar, given our country’s clear economic links to China, has also been falling as the disease has spread.

In general, the further away from the epicentre of the disease, the smaller the sell-off in equity markets. This reflects the uncertainty of the situation and market participants waiting to see how successful the measures put in place have been in stemming the tide of the virus and whether additional measures will be required, both within China and elsewhere.


The majority of major foreign equity markets posted negative returns in January of at least 1.5%. The exception being the United States which broadly remained neutral.

Developed markets returned -0.3% in local currency terms (and 4.3% in Australian dollar terms), whereas emerging markets underperformed relative to developed markets, returning -3.3% in local currency terms. The worst performer was the United Kingdom’s FTSE 100 which returned -3.4% for the month.

The Australian stock market generated a 5.0% return during January, with all 11 sectors contributing positively. Healthcare and Information Technology were the top two performing sectors returning 12.0% and 11.1% respectively. The worst performing sector was Utilities which still managed a positive return of 0.6%.

From a developed market sectoral perspective results were mixed. Utilities and Information Technology were the best performing sectors with returns of 6.1% and 3.4% respectively. Energy (the best performing sector in December) and Materials were the worst performing sectors over the month, as commodity prices have been hit particularly hard by recent developments in China.


The Australian government bond yield curve flattened marginally over January as two-year and ten-year yields decreased by 0.26% and 0.42% respectively amidst risk-off moves in markets. Decreasing bond yields are positive for short term bond investment returns. Ten-year Australian government yields finished the month of January below 1%.

All major global government bond yields decreased over the two-year and ten-year maturities throughout January. The United States government bond yields fell the furthest, reducing by 0.26% and 0.41% over two-year and ten-year terms.


The Australian dollar weakened against all major currencies by at least 3.5% over the month, due to risk off sentiment following the outbreak of the coronavirus. The AUD decreased by 5.4%, 4.9% and 4.9% against the Chinese Renminbi, Japanese Yen and Swiss Franc respectively.
The Australian Dollar finished the month at 0.6692 US Dollars, down 3.3 US cents over the month.


The price of crude oil decreased 15.6% during January driven by declining forecasts for demand. Industrial metal prices decreased 7.5% on average, with copper the worst performer dropping 10%. In precious metals, both gold and silver saw positive returns of 4.7% and 1.1% respectively for the month. Notably natural gas declined 15.9% during January.

Performance of key markets:

Asset class Index Month (% change) FYTD (% change) 1 year (% change)
Australian Shares S&P/ASX 200 Acc. Index 5.0% 8.2% 24.7%
International Shares MSCI World Ex Aust Unhedged A$ 4.3% 13.9% 28.3%
International Shares MSCI World Ex Aust Hedged A$ -0.4% 8.5% 17.9%
US Shares S&P 500 Index 0.0 10.9%


UK Shares FTSE 100 Index -3.4% 0.2%
Japanese Shares Nikkei 225 Index -1.9% 10.2% 14.1%
Australian Listed Property S&P/ASX 200 A-REIT Index 6.4% 6.3% 19.6%
Australian Fixed Interest Bloomberg AusBond Composite Index 2.3% 3.0% 9.1%
Australian Cash Bloomberg AusBond Bank Bill Index 0.1% 0.6% 1.4%
Currency AUD/USD -4.7% -4.7% -8.0%
Returns are for periods to 31  January 2020. Past performance is not an indication of future performance.